2018 (12) TMI 910 - AT - Income Tax

Allocation of sale consideration - co-owner s right and interest in the units - assessee has shown less income on sale of units allotted which are at lower floors compared to sale consideration of upper floors - assessee having rights of 14% in total project - Held that - As per Deed of Declaration dated 02/02/2008, the share of each co-owner in each unit is pre-decided mutually and agreed by all and same will determine profitability on sale of such units. The very basis adopted by the AO is without any basis and also not practical. One co-owner may be willing to sell the unit at available price whereas the other would be willing to hold on to get a better price and that is dependent on the risk appetite of the seller and their financial stability to negotiate the deal. This could result into conflicts between the co-owners. To avoid the same and to have ease in sale of units and its procedures on sale, all co-owners decided mutually to allocate units within themselves in such a manner that each would receive their proportion of share in the total build up area and have complete authority to decide the sale of units allocated to them, the price and the time etc. As find from the facts of the case that assessee had sold unit no.2 and 4 for a total sale consideration of ₹ 4,50,00,000/- and ₹ 4,05,00,000/- respectively during the financial year 2008-09 i.e. relevant to assessment year 2009-10. The assessment for assessment year 2009-10 was completed and the returned income of the assessee has been accepted by the department. Hence, we delete the addition made by AO and confirmed by CIT(A). This issue of assessee s appeal is allowed. AO directing the AO to make addition of 14% share in the unsold units in the income of the assessee in the year in which such unit is actually sold - Held that - Confirming the action of the AO in directing the AO to make addition of 14% share in the unsold units in the income of the assessee in the year in which such unit is actually sold.

Summary

Issues Involved:
1. Addition based on co-ownership share in the project.
2. Addition of 14% share in unsold units in the income of the assessee in the year of actual sale.
3. Double taxation of the same income in the hands of the appellant and respective co-owners.

Issue-wise Analysis:

1. Addition based on co-ownership share in the project:

The primary issue in this appeal concerns the addition made by the CIT(A) on the grounds that the assessee, being a co-owner with a 14% share in the project, should have earned 14% of the entire sale consideration realized on the sale of all units, rather than the actual sale consideration realized by the assessee. The assessee argued that each co-owner was allotted interest in the built-up areas proportional to their shareholding as per the Deed of Declaration dated 02.02.2008. The AO noted that the total consideration of the project, including unsold stock, was ?50,89,08,000, and the assessee's share of consideration should be ?7,12,47,120 instead of the disclosed ?6,45,84,500, leading to an addition of ?66,62,620. The CIT(A) upheld the AO's addition but directed the AO to exclude the profit of unsold units from the current year's income and tax it in the year of actual sale.

The Tribunal found that the AO's allocation of 14% of the total consideration realized on the sale of all units was incorrect and contrary to the Deed of Declaration. The Tribunal emphasized that each co-owner had the autonomy to decide the sale price and timing of their allocated units, and the sale consideration realized by other co-owners should not determine the assessee's profit. Consequently, the Tribunal deleted the addition made by the AO and confirmed by the CIT(A).

2. Addition of 14% share in unsold units in the income of the assessee in the year of actual sale:

The CIT(A) directed the AO to exclude the profit of unsold units from the current year's income and bring it to tax in the year of actual sale, to the extent of the assessee's 14% share. The assessee contended that it had no right or interest in the unsold units as per the Deed of Declaration. The Tribunal modified the CIT(A)'s direction, stating that only the actual profit on the share of the sale of unsold units relating to the assessee, as per the Deed of Declaration, should be considered. If the unsold units did not relate to the assessee, no addition should be made.

3. Double taxation of the same income in the hands of the appellant and respective co-owners:

The assessee raised the issue of double taxation, arguing that the addition made and upheld by the CIT(A) resulted in double taxation of the same income in the hands of the appellant and the respective co-owners. The Tribunal had already addressed this issue while adjudicating the first ground, concluding that the addition made by the AO amounted to double taxation and was unwarranted.

Judgment Summary:

The Tribunal allowed the appeals of the assessees partly. It deleted the addition made by the AO and confirmed by the CIT(A) regarding the 14% share in the project sale consideration. The Tribunal also modified the CIT(A)'s direction concerning the taxation of the profit on unsold units, stating that only the actual profit on the share of the sale of unsold units relating to the assessee should be considered. The issue of double taxation was resolved in favor of the assessee, as the Tribunal found that the addition made by the AO resulted in double taxation. The appeals were partly allowed, and the order was pronounced in the open court on 07-12-2018.